Knowledge spillover in alliances: Why predators don’t become prey

Alliances enable firms to combine assets and realize synergies while accessing each other’s knowledge. Although firms willingly exchange knowledge in alliances, the spillover of non-shared proprietary knowledge to alliance partners is of concern to managers. With this undesirable knowledge spillover, firms may end up giving more than they bargained for, with their alliance partners imitating and outmaneuvering them. Some alliances feature a competitive learning dynamic whereby each party seeks to gain private benefits by absorbing the other’s knowledge while shielding its own knowledge from spilling over to the partner.

Early work has focused on how “predatory” firms manage to “out-learn” their partners, with more recent work also centering on firms’ need to shield proprietary knowledge from spilling over to partners regardless of the latter’s predatory intent. Although prior research has studied knowledge absorption and protection in the same alliance, it has not examined the interplay of absorption and protection across alliances.

In our study, we ask: can a firm that managed to overcome its partners’ knowledge protection and absorb their knowledge, reverse roles and learn to effectively limit the spillover of its own proprietary knowledge to partners in subsequent alliances? Answering this question can shed light on the prospects of managing competitive learning dynamics in knowledge-driven industries.

During the last decades, East Asian tech companies have been transformed from laggards to market leaders. For example, Samsung and LG have replaced Philips and GE in consumer electronics and TSMC has supplanted Intel and Texas Instruments in chip making. In early alliances between East Asian and Western (or Japanese) companies, the former had to learn from the latter, while today many East Asian firms are industry leaders, and thus have their own intellectual property to defend.

We analyzed 529 alliances of about 80 East Asian firms during 1999– 2015 and singled out pairs of alliances 1 to 10 years apart (enough for the firm to internalize the observed defensive practices, but not enough to forget the lessons learned). Overall, we constructed 3,408 pairs of a firm’s previous and subsequent alliances. In the previous alliance, we examine how a firm absorbs knowledge from its partner, whereas in the subsequent alliance, we examine how the firm protects its knowledge from spilling over to its partner.

As a measure of knowledge flows, we use patent citations, which testify to the spillover, and lawsuits, which suggest that the knowledge flow was not voluntary.

Our hypothesis that succeeding in absorbing tech knowledge in a previous alliance makes you better at protecting your knowledge in a subsequent one was corroborated by data. The more an East Asian company learned in a previous alliance, the less knowledge it surrendered in a subsequent one. We also observed that the learning effect diminishes with the number of previous alliances.

Furthermore, we reveal two conditions in the previous alliance that weaken the learning effect:

• When the previous alliance has a large scope, e.g., involves both R&D and marketing activities.
• When the knowledge domains of the firm and its partner are overlapping to a substantial extent.

Intuitively, both conditions make it easier to acquire knowledge from the partner. In the case of large alliance scope, the company has many sources through which it can acquire the partner’s knowledge: If R&D engineers are secretive about their company’s technological know-how, for example, the manufacturing or marketing people may reveal it. In the case of overlapping knowledge domains, the firm only needs a few hints to fully understand what’s going on. In both cases, the firm does not need to invest much in learning how to overcome protection practices.

Based on our findings, we offer a warning and two suggestions for managers. The warning is that by seeking to defend against predators in the short-term, managers might feed the predator and make it stronger in the long-term – not only because the predator may gain access to valuable knowledge, but also because the defender may teach the predator how to defend itself.

The suggestions:

• To managers involved in strategic alliances where their companies have superior knowledge: Protecting knowledge is not enough, since it can make the partners better at defending their own knowledge – managers should also protect their protection practices.
• To managers on both sides: Establishing an alliance function – a dedicated team with expertise for managing alliances – is strongly recommended as it can improve the firm’s ability to both learn from partners and protect knowledge from leaking to partners.

Jens-Christian Friedmann, Dovev Lavie, Linda Rademaker, “Does the Predator Become the Prey? Knowledge Spillover and Protection in Alliances.” In Journal of Management, OnlineFirst, July 31, 2024. DOI: https://doi.org/10.1177/01492063241262741.